Encana seeks to tap oil royalties demand in unit IPO by June

4/15/2014

Encana seeks to tap oil royalties demand in unit IPO by June

REBECCA PENTY

CALGARY, Alberta (Bloomberg) -- Encana reported that it is selling shares of a royalty unit in Alberta as early as next month as it seeks to profit from investor demand for returns based on production.

About 5.2 mn acres of oil and gas areas in central and southern Alberta will be put into a unit called PrairieSky Royalty in an initial public offering expected in late May or early June, Encana said. The company didn’t disclose how much it plans to raise in a separate prospectus filed with regulators.

The IPO will create one of Canada’s largest energy royalty companies as investors seek steady returns from the industry and Encana focuses on oil output under CEO Doug Suttles. The offer comes as equity issuance among Canadian oil and gas producers is on the rise amid higher commodity prices and rising cash flow from companies.

“There’s a lot of people interested in this company, so it will be very closely watched,” Dirk Lever, an analyst at AltaCorp Capital in Calgary, said in a phone interview. “Investors are looking for steady production, growth and not a lot of volatility in revenue nice steady cash flows.”

Oil and natural gas companies raised $2.73 bn in equity in the first three months of the year, more than six times the same period of 2013, according to data compiled by Bloomberg.

Canadian Natural Resources is also considering spinning out royalty lands it agreed to acquire from Devon Energy in a sale, President Steve Laut said last month.

Encana first stated plans for the initial public offering in November. PrairieSky will be created from Encana’s fee-simple, mineral-title lands and associated royalty interests that formed part of its Clearwater business unit.

The royalty company will allow investors to claim returns from fees paid by other producers to drill on PrairieSky lands, which include Apache, Canadian Natural, Devon and Bonavista Energy, according to the filing.

The new company will pay dividends from lands that generated $178 mn in estimated free cash flow previous year, according to the filing. The lands have produced the equivalent of between 14,275 and 15,158 bopd over the past three years.

Toronto-Dominion Bank and Canadian Imperial Bank of Commerce are jointly leading the sale, Encana said.